New High Court judgment on purchaser’s duty to inquire – Deguisa v Lynn [2020] HCA 39

Contact: Sarah Mason-Jones

Is a purchaser of land required to examine historical certificates of title in search for signs that the past owners have entered in restrictive covenants burdening the land?

Can a purchaser of land rely only on what has been disclosed on the current certificate of title and is not bound to make inquiries and searches beyond what is notified on the certificate?

In Deguisa v Lynn, the High Court unanimously answered the first question negatively and the second question positively.

This case concerns a piece of land in South Australia. In mid-1960s, the land was sold as part of a common building scheme – an early form of unit titles scheme. All lots in that development were sold subject to a restrictive covenant limiting the nature and extent of the construction permitted on an individual lot for the benefit of all other lots.

In South Australia (and also in the ACT as the High Court noted), the land titles legislation provided no mechanism for the registration of restrictive covenants, and it is not within the design of the Torrens title system to cater for restrictive covenants. The current owners of the land had no knowledge of the restrictive covenant entered into by the past owners. They proceeded to obtain planning approval to subdivide their lot and build two townhouses. Other owners in the development mounted proceedings.

Section 69 of the Real Property Act 1886 (SA) states:

The title of every registered proprietor of land shall, subject to such encumbrances, liens, estates, or interest as may be notified on the original certificate of such land, be absolute and indefeasible.

For a restrictive covenant in a freehold system to bind the successors of the land, those successors are required to be provided with notice of that restrictive covenant. In light of section 69 above, the current owners of the land contended that they were not required to search beyond the certificate of title to look for matters that limit their otherwise indefeasible titles.

The current owners of the land lost the proceedings in the District Court and in the Full Court of the Supreme Court of South Australia.

The Courts held that the restrictive covenants may be discovered on a search of the Land Titles Office. That is, if the current owners searched the historical certificates of title to the land, they would have discovered an encumbrance made in favour of the developers. Then if they performed a name search, and due to one of the developers having a rare surname, they would have discovered the same developers also sold their neighbours’ land around the same period of time, and be put on notice of the possible existence of a “common building scheme”, and the likelihood of mutually enforceable restrictive covenants.

The High Court overturned the above. Unanimously, the High Court held that:

• A purchaser of land is not bound to make searches in relation to cancelled certificates of title.

• Once a certificate of title has been superseded it is no longer the certificate of title for the lot; there can only be one operative certificate of title at any given time, even if the Land Titles Office kept copies of grandparent or parent certificate of title.

• Considering the object of the Real Property Act is to establish a system of title by registration rather than one of registration of title, and the natural and ordinary meaning of the text of section 69 of the Act, a person who seeks to deal with the registered proprietor in reliance on the State of South Australia’s guarantee of title of the registered proprietor disclosed by the certificate of title in the Register Book is not to be put on inquiry as to anything beyond that which is so notified.

• Since the present certificate of title of the land did not disclose any registered instrument showing the restrictive covenants, the current owners of the land cannot be said to have notice of the covenants.

At Trinity Law, we strive to deliver excellent services with up-to-date legal knowledge. If you require a property lawyer who can put your mind at ease, our excellent team stands ready to help. To obtain tailored legal advice, please contact Trinity Law on (02) 6163 5050 or email your query reception@trinitylaw.com.au

The information in this document represents general information, and should not be relied for your specific circumstances. If you require legal advice and assistance on the matters contained or associated in this document you should contact Trinity Law. Subject to the limits of the law, Trinity Law disclaims any liability on persons relying on this document.